Stakeholder orientation and trade credit: Evidence from a natural experiment

Abstract

Using the enactment of constituency statutes, which encourage corporate directors and officers to consider stakeholders’ interests when making business decisions, as a quasi-natural experiment, we examine the impact of stakeholder orientation on corporate trade credit. We employ a difference-in-differences research design and find that an increase in stakeholder orientation following the introduction of constituency statutes leads to a higher level of trade credit usage. The findings remain robust across a series of sensitivity tests. We also find that the treatment effect is more pronounced for firms with greater conflicts of interest between shareholders and stakeholders, firms with higher level of information asymmetry and lower trustiness, firms are more financially constrained and have greater liquidity needs, and firms with more market power. Overall, our findings support the view that stakeholder orientation can have a causal effect on trade credit.